Bank of Canada won’t use interest rates to target house prices, senior deputy says

# What Rogers said Senior Deputy Governor Carolyn Rogers told a speech in Victoria that the Bank of Canada is limited in how it can address house prices through interest-rate policy. She said the housing market should inform monetary policy but not be the direct goal of rate decisions.

# Why the Bank won't target house prices Rogers called the overnight policy rate a "blunt tool." It can cool or stimulate housing demand by making borrowing more or less expensive, but it cannot fix problems that originate on the supply side. Examples she cited include permitting delays and limited construction capacity. Because those factors constrain the housing supply, changing interest rates alone cannot sustainably restore affordability.

# Policy trade-offs she outlined

• Raising rates can slow price growth but may also slow construction activity that depends on financing.
• Cutting rates can help households afford payments but can also boost demand in a market with insufficient supply, worsening affordability.

She said the Bank examined whether to give home prices or mortgage interest costs more weight in its inflation analysis but found no simple change that would clearly capture the affordability challenge better.

# The Bank's approach going forward Rogers said the Bank's primary tool remains focused on achieving low, stable, and predictable inflation. That outcome is the institution's most practical contribution to housing affordability. The central bank will continue to set borrowing costs to address overall inflationary pressures while acknowledging housing influences those pressures.

She also recommended a policy mix across government and regulators to increase housing supply, protect economic resilience, and reduce reliance on rising house prices for economic growth. She urged consideration of reducing regulatory barriers to investment but cautioned that regulatory changes must be done carefully because regulations have purposes beyond constraining investment.

# Context in recent data and markets

Headline inflation has been kept elevated in part by high gasoline prices, which have maintained yearly inflation around 3%. Core inflation measures are close to the Bank's 2% target on an annual basis, but monthly trends indicate building price pressures, which complicates the rate outlook.

Market pricing showed about a 40% chance of a rate hike at the Bank's next decision in late October, with traders pricing roughly 100 basis points of additional hikes by the following September.

# Practical implications for borrowers and policymakers For borrowers: expect monetary policy to remain centered on inflation, not on correcting house prices directly. Rate changes will influence mortgage costs, but broader housing affordability will also hinge on supply-side steps taken by federal, provincial, and municipal governments.

For policymakers: Rogers's comments point toward measures that reduce permitting frictions, encourage construction, and manage regulatory burdens while protecting other policy goals. Monetary policy alone cannot substitute for those actions.

# Bottom line Canada will continue to treat housing outcomes as an important input to inflation decisions, but it will not use interest rates as a tool specifically to steer house prices. The institution emphasizes inflation control and calls for complementary supply-side policy changes to address affordability.